E11-2 Iridium Corp. has spent $3.5 billion over the past decade developing a satellite-based telecommunication system. It is currently trying to decide whether to spend anadditional $350 million on the project. The firm expects that this outlay will finishthe project and will generate cash flow of $15 million per year over the next 5 years.A competitor has offered $450 million for the satellites already in orbit. Classify thefirm's outlays as
sunk costs
or
opportunity costs,
and specify the
relevant cash flows.
E11-3 Canvas Reproductions, Inc., has spent $4,500 dollars researching a new project. Theproject requires $20,000 worth of new machinery, which would cost $3,000 toinstall. The company would realize $4,500 in after-tax proceeds from the sale of oldmachinery. If Canvas's working capital is unaffected by this project, what is the ini-tial investment amount for this project?
E11-4 A few years ago, Largo Industries implemented an inventory auditing system at aninstalled cost of $175,000. Since then, it has taken depreciation deductions totaling$124,250. What is the system's current
book value?
If Largo sold the system for$110,000, how much
recaptured depreciation
would result?
E11-5 Bryson Sciences is planning to purchase a high-powered microscopy machine for$55,000 and incur an additional $7,500 in installation expenses. It is replacing sim-ilar microscopy equipment that can be sold to net $35,000, resulting in taxes from again on the sale of $11,250. Because of this transaction, current assets will increaseby $6,000 and current liabilities will increase by $4,000. Calculate the
initial invest-ment
in the high-powered microscopy machine